How Pay Day Loans Work

Pay day loans are surrounded by a lot of confusion and myth in the financial world. Many people think that they are scams or are not worthy of consideration when money is needed quickly. In reality, they can be a welcome backup plan when a consumer is in need of cash in a hurry. The basic process behind getting these types of loans is relatively simple and pain-free.

Applying for a Loan

When a cash advance is needed, there are a number of different lenders that are available. Consumers can find them online or in their local market. When a lender is located, the consumer will need to fill out a basic application to get access to the money they need. On the application, the lender will ask for some simple information such as the consumer's name, address, phone number and Social Security number. When the application is filled out, the lender will not look at the credit report of the individual, but will instead be more concerned with his monthly income. As long as the applicant makes a certain amount of money on a regular basis, the loan can be approved. Some lenders will verify the borrower's employment situation to make sure that he really does have a job.

Transferring the Money

After the loan has been approved, the cash advance merchant will typically transfer the money to the applicants bank account within a short period of time. In many cases, the money can be transferred within one hour of approval. At the longest, some lenders will wait about 24 hours to get the money to the borrower. Once the money has been deposited into the bank account, the borrower can use it in any way that he sees fit.

Paying Back the Money

The length of time for a cash advance can vary from one case to the next. Some loans are designed to only last one week while others can last up to six weeks. These terms are agreed upon on the front end of the deal. When the loan is set up, a payment date will be set. When that date arrives, the lender will debit a payment out of the bank account of the borrower. In some cases, the entire loan will be paid back with one payment. In other situations, the lender will take multiple payments out of the account until the debt is repaid.


This process can be convenient for the average consumer and because of its convenience, the lender will charge a few fees. Some lenders charge application fees and processing fees. Others will simply charge an interest rate on the amount that is borrowed. Some lenders just charge a flat fee for the entire thing. The fee is added on to the amount borrowed and the total is taken out of the bank account of the borrower on the appointed day.

If the borrower knows that he is not going to be able to make the payment on the appropriate day, he can ask for an extension. Most lenders will charge a fee for the extension, based on the amount of money that is being borrowed. This fee is added onto the payment that will eventually be made to pay off the balance of the account. This process can come in handy when a consumer needs cash urgently and has nowhere else to go.

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